A Look at Commercial Co-Ventures with 2020 Vision
2020 has been a year fraught with dark moments, from the rapid, worldwide spread of COVID-19, to the tragic deaths of Ahmaud Arbery, George Floyd, Breonna Taylor and others, to the loss of institutional guiding lights, including John Lewis and Ruth Bader Ginsburg. As is often the case during times of crisis, various events this year have inspired companies to raise awareness and funds for particular charitable causes through the sale of certain products and services. While motivating consumers to make a purchase by promising that a portion of the proceeds from such sales will be donated to charity seems like a noble and worthy endeavor, doing so may inadvertently subject both the company and the charity to certain obligations and liabilities.
Cause-related marketing is an increasingly popular form of Corporate Social Responsibility, in which a for-profit entity engages in a marketing campaign with the parallel goals of increasing profitability and supporting a charitable mission. Often, the campaign will involve a donation to a charitable organization that is tied to a consumer’s purchase of goods or services. This arrangement is also known as a commercial coventure (CCV).
Numerous studies have shown that consumers are guided by ethics when making purchasing decisions, which has flourished during the pandemic. For instance, in a recent pre-COVID-19 study, nearly two-thirds of respondents said they believe it is a company’s responsibility to give back and to have a moral or ethical viewpoint.1 In a survey completed in March, 62 percent of respondents across various markets said that their country will not make it through the coronavirus crisis without brands playing a critical role in addressing challenges related to the pandemic.2 And approximately 70 percent of US consumers surveyed in April said that they will stop buying products or services if they learn of a company’s irresponsible or deceptive business practices during the pandemic.3
Accordingly, companies are incentivized to publicly promote their support of charitable and social causes. Not only can cause-related marketing cultivate trust and brand loyalty in existing customers, but it can attract new customers by appealing to a shared desire to engage in positive societal change.
During 2020, a number of companies have raised funds for important causes by donating a portion of the proceeds from sales of their products or services to those causes. But, before a business launches a cause-related marketing campaign, it is important to bear in mind that at least 22 states have laws governing CCVs and other charitable fundraising activities. Further, the uptick in cause marketing related to the COVID-19 pandemic has triggered closer scrutiny of such campaigns by state attorneys general.
As CCV laws vary from state to state, brands running national promotions will have to comply with all state requirements, some of which require early planning. Marketing and advertising teams should consider the following requirements, among others, before commencing a cause-related marketing campaign:
Registration. Many states require companies to register with the state in advance of engaging in any solicitation activity. There are often registration fees and renewal requirements. Charities supported by the cause-related marketing campaign may also need to register (and such registration may need to be signed by authorized individuals of the charity). Moreover, the charity’s registration often needs to predate the company’s registration.
Written Contract With Charity. Many states require a written contract between the company and the charity prior to solicitation. Generally, the contract must be in writing and may need to be signed by authorized officers of the company and/or charity. The contract should describe the respective obligations of the parties with respect to the campaign and may need to include particular provisions, such as a description of the goods or services to be offered to the public. A copy of the contract may need to be filed with certain states within a certain time period prior to solicitation. Some states require the company to file a copy of the agreement, while others require the charity to file.
Required Advertising Disclosures. Many states require the company conducting the cause-related marketing campaign to make certain disclosures in its advertising materials, such as the dollar amount or percentage of the sale that will benefit the charity and sometimes the name, address and phone number of the charity. Some states require specific disclosure statements to be included in the advertising (e.g., New York and West Virginia).4 If solicitation is done over the radio, television, telephone or any other means not involving direct personal contact with the person solicited, additional disclosures may be required.
Other Requirements. Some states require documentation to be filed before the promotional campaign begins, such as organizational instruments and financial statements for the latest fiscal year. Certain states may require the company to post a bond or file notices of promotion and solicitation or licensure of the charity prior to solicitation. During the promotion, some states may require the company to either maintain a separate account to be controlled by the charity or to transfer funds to the charity periodically. Some states also require certain disclosures during the promotion, such as the name and address of the charity and the company. After the promotional campaign is over, some states require the company to file a final accounting or an annual financial report. Many states also require the company to retain records relating to all solicitation activities for at least three years after the promotional campaign ends.
When consumers reflect back on 2020, there will be an opportunity for socially-conscious brands to stand out as a bright spot. Just ensure that the positive light on your business isn’t dimmed by subsequent enforcement action by state authorities for failing to comply with the applicable state requirements.
Special thanks to summer associates, Aileen Tan and Hanna Nunez Tse, for their contributions to this article.
(4) N.Y. Exec. Law § 174-b; W. Va. Code § 29-19-8.